Ratcheting up pressure on the largest bank in the country, has subpoenaed five current or former Bank of America Corp directors to learn what they knew about Merrill Lynch & Co.’s problems as the companies prepared to merge.
The attorney general issued the subpoenas Wednesday morning to determine "what did the board know, and when did they know it," according to a person familiar with the probe who requested anonymity because Cuomo’s investigation is ongoing.
It is unclear which directors received the subpoenas. Cuomo wants to know directors’ familiarity last November and December with Merrill’s mounting losses, the $5.8 billion of bonus payouts that Bank of America authorized, and which details should be disclosed to shareholders, the person said.
"Directors are responsible to shareholders that elected them," said Cornelius Hurley, director of Boston University’s Morin Center for Banking and Financial Law. "Doing the right thing is a rule, and if someone says do the wrong thing, that doesn’t absolve them from that responsibility."
More disclosure could help Cuomo getting to the bottom of who knew what about Merrill’s mounting problems.
The attorney general has threatened to sue Bank of America officers, perhaps including Chief Executive Kenneth Lewis, and its lawyers over a lack of disclosures about the merger, which shareholders approved last Dec. 5 and which closed on Jan. 1.
Bank of America did not comment on the subpoenas to directors. It said it will continue cooperating with Cuomo’s office, and believes there is no basis for charges against the bank or executives. Cuomo’s office declined to comment.
On Monday, federal judge Jed Rakoff rejected the bank’s $33 million settlement of U.S. Securities and Exchange Commission charges that it lied to shareholders about the bonuses.
MORE TESTIMONY TO BE DEMANDED
Cuomo has accused Bank of America of withholding information about the bonus payments, Merrill’s $15.8 billion fourth-quarter loss, a $2 billion write-down for subprime mortgages, and its right to back out of the merger.
Lewis tried to invoke a contractual provision to scuttle the merger, but has said Federal Reserve Chairman Ben Bernanke and then-U.S. Treasury Secretary Henry Paulson pressured him to complete the merger so as to not upset the financial system.
Bernanke had disputed Lewis’ characterizations of his role. Bank of America in January accepted a $20 billion emergency bailout to absorb Merrill, on top of $25 billion of federal bailout money it took last fall. It then had to raise a $33.9 billion buffer after a federal "stress test."
Shares of the Charlotte, North Carolina-based bank are down by about half since the merger was announced a year ago.
The subpoenaed directors include "those most likely to have been briefed the most" about Merrill in November and December, the person familiar with Cuomo’s probe said.
"This is a sign that Cuomo intends to hold the BofA board accountable if it was involved in the decisions, or if it took a purely passive role and didn’t perform its required function as a check on management," the person said.
Most if not all of the 16 directors at the time will likely be expected to provide testimony, the person said.
BOARD OVERHAUL
The lead director at the time was O. Temple Sloan, a car parts executive who chaired the bank’s executive committee and its compensation and benefits committee, and also sat on its corporate governance committee.
Other directors included CVS Caremark Corp Chief Executive Thomas Ryan, who led the corporate governance committee; utility NStar Chief Executive Thomas May, who led the audit committee; and Jackie Ward, a software executive who led the asset quality committee.
Other executive committee members included Lewis, former FleetBoston Financial Corp chief Charles Gifford, and former Liberty Mutual Group chief executive Gary Countryman.
None of the 16 directors at the time either returned calls or could be reached for comment.
Following the Merrill purchase, the board grew to comprise 19 directors. Ten have left since April, including Sloan, Ward and Countryman. Five directors have been named, giving the board 14 members. Walter Massey, president emeritus of Morehouse College, replaced Lewis as chairman in April.
Bank of America shares were up 37 cents, or 2.2 percent, at $17.16 in afternoon trading on the New York Stock Exchange.
